Mapletree Industrial Trust ME8U
Price target:
Maybank Securities ‘hold’ $2.30
Tenant bankruptcy adds to headwinds
Krishna Guha of Maybank Securities has kept his “hold” call with a lower target price of $2.30 on Mapletree Industrial Trust (MINT), noting that the REIT’s tenant bankruptcy has added to its headwinds. Guha’s previous target price on the REIT was $2.45.
On June 6, MINT announced that its third-largest tenant had initiated bankruptcy proceedings with rent for May partly due. The tenant occupies space in eight of MINT’s data centres across North America. Of the eight, seven of the data centres occupied are joint venture (JV) assets with MINT’s sponsor. The tenant contributes about 3.2% of the REIT’s monthly gross rental income (GRI) as at March 31.
Given the negative news from MINT’s peers and other tenants such as AT&T and SunGard, Guha says this raises concerns about whether the data centre growth story is beginning to unravel.
The bankruptcy also raises a few questions about MINT’s leasing strength in the US and the level of oversight management has on tenant operations on an ongoing basis. “All that said, we expect MINT to mitigate the impact given its diversified portfolio and tenant base,” he adds.
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In addition to his lower target price, Guha has also lowered his distribution per unit (DPU) forecasts by 1% to 3%. The lowered DPU forecast takes into consideration the pro forma 2.1% DPU accretion from the Osaka deal and the potential impact from the REIT’s tenant’s bankruptcy, which is estimated to lower the REIT’s DPU by 3.5%.
“Our concerns remain on local manufacturing slowdown and today’s news further adds to potential downside risks for data centre assets as well,” he says. — Felicia Tan
IREIT Global UD1U
Price target:
RHB Bank Singapore ‘neutral’ 53 cents
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Minimal accretion from acquisition
RHB Bank Singapore Vijay Natarajan has kept his “neutral” call on IREIT Global with a lower target price of 53 cents from 55 cents previously, even though he likes that the REIT has proposed to acquire out-of-town retail parks in France.
The REIT’s latest acquisition will further diversify its geographical spread and asset class mix while mitigating tenant concentration risks, notes the analyst. However, the acquisition will see minimal accretion to the REIT’s earnings although the equity funding mix of around 60% will boost stability, he adds.
On June 1, IREIT Global announced that it was acquiring 17 retail properties for EUR76.8 million ($112.2 million). Including fees, the acquisition should cost about EUR90.9 million in total. The properties have a long weighted average lease expiry (WALE) of 6.8 years and have the potential to be extended since the tenant, B&M Group, has seen double-digit sales growth.
Natarajan says the French government has put restrictions on the establishment of retail parks. There is also potential upside from plans to install solar panels and an electric vehicle (EV) charging network that will generate extra income, while there is an untapped commercial gross floor area (GFA) of 5,000 sqm.
To fund the acquisition, IREIT intends to raise $75.4 million in equity via a preferential unit offering. On a pro forma basis for FY2022, IREIT’s distribution per unit (DPU) is expected to be flat if the acquisition had been completed by the end of the latest financial year. The acquisition also has a net asset value (NAV) dilution of 7% although its gearing after the acquisition will grow to 33.3% from 32%.
To factor in the new units as well as changes to the REIT’s debt and occupancy levels, Natarajan has trimmed his DPU estimates for FY2023 to FY2025 by 4% to 5%. — Felicia Tan
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Jumbo Group 42R
Price target:
SAC Capital ‘buy’ 42 cents
Return of Chinese tourists
SAC Capital analyst Yeo Peng Joon has kept his “buy” call on Jumbo Group with a higher target price of 43 cents from 41 cents previously.
Yeo’s report on June 1 comes after Jumbo’s financial results for the 1HFY2023 ended March 31.
On May 12, the F&B group reported earnings of $7.9 million for the six-month period, reversing from a loss of $4.5 million a year ago. The figure surpassed Yeo’s expectations, forming 116% of his FY2023 forecast. It also came above the consensus estimates at 93% of its full-year forecast.
Likewise, Jumbo’s 1HFY2023 revenue, which surged by 73.3% y-o-y to $85.9 million, went beyond Yeo’s expectations at 64% of his FY2023 estimate.
Jumbo’s stellar performance was thanks to a 134% surge in its sales in Singapore. This was due to the price hikes of specific menu items, higher footfall from the country’s relaxation of Covid-19 measures and the easing of border restrictions, as well as the return of large-scale bookings, notes Yeo.
With visitor arrivals in Singapore now at 71% of pre-pandemic levels and a lag in inbound Chinese arrivals, Yeo notes that there is still room for Jumbo to grow.
Other positives in Yeo’s view include the group’s moves to improve sales. This includes transforming Sui Yi Gastrobar at The Riverwalk into the more popular Jumbo Seafood establishment to meet the high demand for the latter. Before its switch, Sui Yi Gastrobar was said to have had lacklustre sales at The Riverwalk.
The group also made an inaugural foray into halal dining with its first halal seafood restaurant, Mutiara Seafood, located at Wisma Geylang Serai. This establishment spans two floors, with the second floor capable of hosting various functions. The newly-opened halal restaurant opens Jumbo up to a more diverse customer base, says Yeo.
While Jumbo’s sales in China remained muted with lacklustre foot traffic on the back of a surge in Covid-19 cases in December 2022, Yeo notes that Jumbo Seafood at China’s Universal Beijing Resort still has “ample room to expand its sales further and capitalise on the return of tourists”. Jumbo’s China sales fell by 21% y-o-y to $13.4 million although it rose by 21% on a h-o-h basis.
The group’s sales in Taiwan fell by 11% to $2.4 million in the 1HFY2023 due to a week of renovation at Jumbo Seafood in Taipei.
With this, Yeo has also upped his earnings estimates for FY2023 to FY2024 by 16% to 76%. His new target price is pegged to the group’s FY2023 EV/Ebitda and P/E of 3.6x and 15.4x respectively.
“We remain upbeat on Jumbo’s prospect fuelled by essential factors that include Mutiara Seafood turning profitable, the return of international and Chinese visitors patronising their restaurants, an upswing in large-scale events and the potential for a dividend payout,” Yeo writes.
Meanwhile, he is also cognisant of headwinds such as the tightening of customers’ wallets from the cooling economic climate. Escalating operating costs such as raw materials, manpower, rent and utilities, and the ongoing manpower shortage are other downside factors. — Felicia Tan
Netlink NBN Trust CJLU
Price target:
Citi Research ‘buy’ 99 cents
Digital Connectivity Blueprint potential boon
Singapore’s newly unveiled Digital Connectivity Blueprint, which outlines the strategic priorities and investment in emerging areas to keep pace with the country’s connectivity needs, could be positive for Netlink NBN Trust, say Citi Research analysts Luis Hilado and Arthur Pineda.
Under the blueprint, the Ministry of Communications and Information and Infocomm Media Development Authority (IMDA) is asking the telco industry to upgrade the nationwide broadband network (NBN) to support up to 10Gbps speeds next year.
Thus far, there are no details regarding the 2024 deadline, the potential costs and whether the government will provide any direct or indirect support, Hilado and Pineda point out. They further add that although 10Gbps plans are already available in the market at a monthly premium pricing, mass-market adoption is closer to the more affordable 1Gpbs plans.
During its recent earnings call, Netlink indicated that its existing passive network could already support such speeds, the analysts note. However, an upgrade of equipment by the operating companies may lead to higher space and power demand for Netlink’s central offices.
“In FY2023 ended March, central office revenues accounted for 4% of Netlink’s total revenues. It is worthy to note that the rates for the business are not regulated whether under the regulated asset base regime or otherwise,” Citi analysts add.
Given that expanding central office capacity would be needed to support the 10Gbps initiative, the analysts do not discount the possibility that IMDA will factor in related capital expenditure in determining the asset base that will be used for the oncoming five-year interconnected rate regime. Citi’s current base case assumption of an 8% reduction in residential and non-residential rates could be tempered, they add.
Although the Digital Connectivity Blueprint is a positive development for Netlink, the degree of the impact remains to be seen. That said, Netlink is currently offering a healthy expected total return and analysts are maintaining their “buy” rating with a target price of 99 cents. — Khairani Afifi Noordin
PropNex OYY
Price target:
Maybank Securities ‘buy’ $1.20
Resilient market leader
Maybank Securities analyst Eric Ong has retained his “buy” call on PropNex with a higher target price of $1.20 from $1.10 previously.
This is amid the resilience of Singapore’s residential property market on the back of strong underlying demand for housing, despite two rounds of cooling measures in the past seven months.
In his June 1 report, Ong notes that PropNex may register softer 1HFY2023 earnings y-o-y due to a lack of project launches in 4Q2022 and 1Q2023. Despite this, he expects the company’s performance to rebound in 2HFY2023.
PropNex may see its transaction volumes improve with more supply. Ong points out that the supply of private housing under the Government Land Sales programme has increased from 3,500 units on the confirmed list in 2H2022 to 4,100 units in 1H2023.
Meanwhile, on the public housing front, the HDB will also launch up to 23,000 flats this year aside from about 40,000 new flats in total from 2024–2025, subject to prevailing demand.
Given that locals and permanent residents still dominate home sales, Ong expects most new launches to proceed as scheduled. However, developers will need to price their units more sensitively given the high interest rates and uncertain macro environment, he says.
“In fact, Far East Organization and its joint venture partner Sino Group sold 520 units at The Reserve Residences on its first weekend on May 27 and 28. This sales figure translates to 82% of units released (635) and 71% of total units (732) at an average price of $2,450 per sq ft,” adds Ong.
PropNext’s rental, HDB resale, landed, commercial and industrial segments are unlikely to be affected much by the latest cooling measures, Ong says. Together, these segments account for close to 40% of its FY2022 revenue.
While there may be some slowdown in the sales of high-end and luxury homes in the core central region, Ong believes that foreign investors may shift their focus to commercial and shophouse properties.
Maybank is rolling forward PropNex’s valuation to FY2024 and pegs it at a higher P/E of 15x from 14x previously, given its growing market share and better trading liquidity after its 1-for-1 bonus issue in May. Ong also notes that from May 19 to 22, PropNex executive director Kelvin Fong acquired 784,200 shares in the open market at an average price of $1.02 per share, lifting his direct and deemed interest in PropNex to 8.85% from 8.75% previously. — Khairani Afifi Noordin
